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Why CEOs Should Tell Employees That the Startup is Failing


TechInAfrica — The journey to building a successful enterprise is not always, many things happen, from conceptualization to realization. While only 50% of startups survive beyond the first five years, the other half cannot win the battle against market realities and fail in scaling their businesses.

It is rational for entrepreneurs to surround themselves with people of diverse experience and skills in order to accomplish long-term success because success in business is not only a function of the founder’s vision.

However, as the business expands, the founder backs off to focus on CEO-only tasks, leaving employees to operate independently in their delegated roles.

At this point, employees may be unaware of all that happens with the management of growth and business sustenance. Even something as grave as a shutdown could come unexpectedly to them.

Often times, employees bear the loss of a business when it collapsed.

Laying off employees is not only common with failed businesses. Sometimes it has to be done to cut costs, while other reasons behind it may be to restructure the workforce.


Adewale Yusuf, CEO and founder of Techpoint Africa said, “When projections are not met, investors are not forthcoming, or bond rates are failing, in everything carry your team along. They deserve it.”

Iris Shoor, an Isreali serial entrepreneur argues that every founder knows when they are about to fail but they are only afraid to speak about it.

As CEO and founder of her third startup, after exiting the previous ones, she verifies that founders may want to protect their employees from what seems inevitable. It is better to be transparent about the progress so that the people can know where they stand or at least have a clear picture of the current state of the business. This way, there would already be plans to assist employees to move on as leaving employees in the dark could have a profound effect.

Creating a compensation plan

It is possible to find employees yielded on the altar of business sustenance or failure, however, it must be done the correct way.

Andela recently attracted the attention of laying off staff. It let go of more than 400 Andelans to give room for more senior software engineers in a transition to realign with market needs.

The official statement stated that the laid-off workers approached to support packages.

A well-defined compensation plan would make the affected staff feel a short time later, and also prevent agitation that could follow an unceremonious layoff.

However, there might be a special case to this when a startup failed because it came up short on funds.

The reasons startups let employees go vary, but the important question to ask is if the employees are et up for the effect.



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